ON the eve of the Bank of England’s monthly Monetary Policy Committee meeting over the Bank’s interest rate, the British Chambers of Commerce has issued a dire warning to the Bank – that it must not raise its interest rate further from its current level of 5.75 per cent, when decision time arrives on Thursday.
The Chambers of Commerce warned that ‘In the UK, the recent severe floods are putting severe pressures on business, while internationally we are witnessing a sharp deterioration in the global credit markets, which has eroded confidence and has triggered widespread falls on most stock markets.
‘Against this background, it would be very dangerous to contemplate interest rate increases, and we expect the MPC to keep rates at 5.75 per cent. But the markets still expect an increase in rates later in the year, and this is very regrettable.
‘Many commentators are now supporting our view that the MPC risks raising rates too far, and is not allowing sufficient time for previous increases to have their full effect. There are already signs that the housing market may have started to soften. It is important to avoid an over-reaction, which could cause serious economic damage.’
It seems that the Chambers of Commerce, faced with the rapidly deepening crisis of the capitalist system and with British capitalism being strained to breaking point, is losing its nerve.
The Chamber is, however, not alone in its warnings that a rate rise will trigger a disaster, i.e. a crash of the housing market and a run on sterling that will require sky-high interest rates to halt, ruining millions of mortgage holders in the process, and creating hundreds of thousands more unemployed.
Fitch Ratings in its just-released report states that the UK is second only to France in having the most over-priced and inflationary house valuations in the world.
It adds that the combination of hugely inflated house prices and the £1.4 trillion of domestic debt makes the UK economy vulnerable to a crash and a deep slump.
In fact, Wall Street’s Dow Jones Industrial Average has already begun to fall.
Its 1.5 per cent fall on Friday, brought its fall for the week to 4.2 per cent, the largest weekly percentage drop since March 2003.
The British stock market has lost three per cent of its price quotation in a week. As well, the bourgeoisie fears that the rise and rise of interest rates is putting the skids under the equity capitalists who have now got their hands on a sizeable portion of the British economy.
Their deals are now unravelling at Saga-AA, Sainsbury and Boots. The banks have found that they have not been able to sell on the debt that the equity capitalists have run up with them, because higher interest rates mean that there is a much greater risk of an equity capitalist default.
The rise of the equity capitalist super-deals, that drove share prices up, will now see these share price bubbles collapsing, because of higher interest rates, ruining all and sundry.
This is the disaster that the Chambers of Commerce fears and sees touching off a generalised collapse of the currency and the economy.
Some financial groups are however more sanguine about this situation. They take a slightly longer view. The Ernst and Young Item Club said yesterday that ‘The correction in world credit bond and equity markets is overdue and will head off the risk of a much larger crash later on.’
This is the capitalist mad-house where the productive forces face mass wipe-out because of the private ownership of the means of production.
There is only one sure cure for this crisis of capitalism and that is a socialist revolution, not just in Britain, but on a world scale.